Siemens' passive-component spin-off, Epcos, charts new course

A year after Siemens Ltd. announced plans to spin off its passive-components business, the company is thriving under a new name as a publicly held company. Senior editor Bettyann Liotta interviewed Epcos' chief executive, Klaus Ziegler, who discussed the company's future without its parent, Siemens, and partner Matsushita.

EBN: Did the company's initial public offerings on both the U.S. and German exchanges go as planned?

Ziegler: They went better than planned, to be honest. We were five times oversubscribed. In the meantime, shareholder value has gone up from 31 to around 50 euros, so it went very well. It went exceptionally well in the U.S. I have the feeling that investors in the United States have a better understanding of our technology and business. Perhaps the Europeans are not yet as focused on these technologies as the Americans and British are.

EBN: What will Epcos do with the proceeds?

Ziegler: We received very little in proceeds. Siemens and Matsushita received most of the money. EBN: Was Epcos' share sufficient to finance all its planned investments?

Ziegler: No, not enough. We only received 100 million euros. But it does help, and we're not dissatisfied. We'll make the money out of our business. It was a help, but it doesn't solve all of our needs for the future.

EBN: How much is needed in total for planned investments?

Ziegler: It's difficult to say right now. Epcos' investments every year reach about 250 to 275 million euros. We expect our investment needs over the next several years to continue to exceed our cash flow from operations.

EBN: How will the "new" Epcos compare with the old Siemens Components business? Will you expand or get rid of any of your four businesses-capacitors, ceramic components, surface acoustic wave (SAW) components, and ferrites?

Ziegler: We won't shy away from anything. With regard to products, we're continuously innovating. Every three to four years, we innovate 70% of our product spectrum, maintaining more or less the same customer focus as long as it proves to be the right one.

EBN: Can we expect the product categories to remain the same?

Ziegler: The categories will be the same, but the products will not be the same, especially in the area of SAW and microwave ceramics. We'll apply a completely new technology to those products. In regard to chips and packaging technologies, we'll change completely and come out with new products. In the capacitor area, we'll have so-called ultracapacitors, which is a mix between a battery and a capacitor. We're developing them further, especially for automotive applications and energy-generation purposes. Then we'll introduce a new ceramic technology, which we will use to produce integrated passive systems.

EBN: Will you be expanding into new applications other than mobile, automotive, consumer, and high-end industrial?

Ziegler: It will stay exactly the same, with telecom being the most important. Our share of the telecom market will gain in importance from month to month.

EBN: Siemens and Matsushita have been partners since 1989. What impact do you expect the end of this agreement to have on Epcos going forward, since you will now be competing with them head-to-head?

Ziegler: I don't see any change, because we were competing with them even in the past.

EBN: Will Siemens always be Epcos' largest customer?

Ziegler: It's not our largest customer- that's changed already. Our largest customer today is Nokia. Siemens as a customer was responsible for 17% of our business.

EBN: Can you expand on a few of your goals?

Ziegler: To be more innovative than competitors, and by this I mean you have to innovate even when demand cycles go down, because you will be better off. The second thing is we want to shift emphasis from Europe to the Asia-Pacific and NAFTA areas. We're doing it rather successfully. A few years ago, 85% of our business was in Europe. Now, it's less than 70%, and the portion of Asia-Pacific and NAFTA [areas] is increasing continuously.

EBN: What are your plans in distribution?

Ziegler: We anticipate to increase the portion of sales through distribution from about 15% today to more than 20% in the coming years.

EBN: What is the biggest hurdle you've jumped so far?

Ziegler: Well, the biggest hurdle we have not yet jumped: It's very difficult today to satisfy our thousands of customers around the world with certain components because at present there's a shortage, and, of course, we would like to help our customers as much as we can not to have any problems due to the fact that we may not be able to supply as much as they require.

EBN: Is that mostly in SAW filters and capacitors?

Ziegler: There are many other product areas, especially in specialties, including ceramic products and specialized capacitors. I think we have hardly any product area today where there isn't a shortage. It pinches us, because sometimes we have to tell our customers that we can't live up to their expectations.

EBN: What are you doing now to rectify that situation?

Ziegler: Well, to increase the capacities as quickly as we can and improve the yield situation of existing capacities.

EBN: Do you plan to stay with Epcos after your contract expires in 2001?

Ziegler: I'm an old warrior. I'll most likely stay. There's a good chance I'll go into a supervisory role. I've been in the components business for more than 20 years. As long as I'm still in good health, I'll always be connected with that business. In 2001, I seriously plan to leave the CEO position. Before I die, I'd like to enjoy life a little bit more.